The growth momentum has continued in the manufacturing sector in the fourth quarter of the fiscal year 2022 and the first quarter of FY23 after experiencing a revival in the first three quarters of the previous fiscal year, according to the Federation of Indian Chambers of Commerce & Industry’s (FICCI) recent quarterly survey.
“There seems to be an improvement in hiring/employment outlook after a long gap,” the FICCI said in a statement.
The survey revealed that 54.8 percent of respondents reported higher production levels in the first quarter of FY23, with an average expectation of rise in production by more than 10 percent. “This is slightly more than the percentage of respondents experiencing higher growth in Q1 of last year,” the statement said.
The survey also noted that the employment creation by the sector seemed to see an improvement as compared to the previous quarter (Q3 of FY22), “where only 25 percent of the respondents were looking at hiring in the next few months. significantly to 53 percent of the respondents in Q1 FY23 who are now looking at hiring additional workforce in the next three months,” the statement said.
This assessment is also reflective in order books as 55 percent of the respondents in the first quarter of FY23 are expecting a higher number of orders, the survey added.
FICCI’s latest quarterly survey assessed the manufacturers’ sentiments for the first quarter of FY23 for twelve major sectors — automotive, cement, capital goods, chemicals, footwear, fertilizers and pharmaceuticals, machine tools, paper products, metal & metal products, textiles, toys , tire and miscellaneous.
Responses have been drawn from more than 300 manufacturing units from both large as well as SME segments with a combined annual turnover of over Rs 3 lakh crores.
Capacity Addition & Utilization
The existing average capacity utilisation for the last quarter of FY22 in manufacturing is 77 percent, a little higher than 75 percent in the earlier quarter, which reflects increased economic activity in the sector, the statement said. “The future investment outlook also improved as compared to previous quarters but remains that of cautious optimism, as 40 percent of respondents reported plans for capacity additions in the next six months, by 14 percent on an average,” it added.
Some of the major constraints blocked affecting the expansion plans of the respondents include high raw material prices, cumbersome regulations and clearances, increased cost of finance, shortage of working capital, high logistics due to the increasing fuel prices and shipping lanes, unstable market, shortage of skilled labor etc.
As many as 80 percent of the respondents expected either more or the same level of inventory in the first quarter of FY23, which is a little lower as compared to the earlier quarter, where about 90 percent of the expected response either more or the same level of inventory.
“The outlook for exports seems to be positive as 53.4 percent of the respondents expect an average increase of 15.2 percent in exports in Q1 FY23 as compared to the first quarter of last year,” the statement added.
The average interest rate paid by the manufacturers has increased to 9.69 percent per annum compared to 8.4 percent per annum during the last quarter. The highest rate at which a loan has been raised is 16 percent per annum. High lending rates were reported by around 70 percent of the respondents, FICCI said.
Based on expectations in different sectors, almost all of them are likely to register moderate to strong growth in Q1 FY23, except a few.
The cost of production as a percentage of sales for manufacturers in the survey has risen for 91 percent of respondents in the fourth quarter of FY22. Reduced availability and high raw material prices, especially that of steel, increased transportation, logistics and freight cost, and rise in the prices of crude oil and fuel have been the main contributors to increasing cost of production, the statement said, adding “Other factors”. responsible for escalating production costs include enhanced labor costs, high cost of carrying inventory, and fluctuation in the foreign exchange rate.”
“While 77 percent of our mentioned respondents that they do not have any issues with workforce availability, the remaining 23 percent feel that there is a lack of skilled workforce available in their sector,” the FICCI said.